Last fiscal year, the 40-bed Kossuth Regional Health Center had a $3 million budget and finished $680,000 in the red - the biggest deficit in Richards' quarter-century on its staff.

"We're able to keep the system running because we've tightened screws, become more efficient and held costs down, but how much more can we keep doing that?" Richards said.

Some relief may be just over the horizon.

House and Senate versions of Medicare prescription drug legislation would provide $25 billion to $28 billion over the next decade to reduce the gap in Medicare reimbursement rates between urban hospitals and rural ones.

Under a complex formula developed more than 20 years ago, hospitals in San Francisco and New York get an average of 1.6 percent more for the same procedures than those in Iowa, Montana or Kansas.

A separate formula that factors in malpractice premiums and regional cost and wage differences also reimburses urban doctors at a higher rate than rural ones.

For example, Medicare now pays a hospital in Bismarck, N.D., $3,988 for a heart failure procedure. For the same procedure, a hospital in New York is paid $6,460, according to Rep. Earl Pomeroy, D-N.D.

The differential is based on assumptions that it is cheaper to provide health care in small towns than bigger cites.

Lawmakers, health experts and Medicare officials differ on whether those assumptions are still valid.

Malpractice premiums, office rent and cost of living all tend to higher in urban areas, according to the Centers for Medicaid and Medicare Services, a division of the Health and Human Services Department. Urban hospitals also tend to have higher hospitalization rates and longer hospital stays, and also offer a wider variety of services.

But lawmakers from rural areas and some policy advocates point to examples where costs are higher in the countryside.

Rick Pollack, executive vice president of the American Hospital Association, said rural hospitals also lack the patient volume of big-city facilities that helps spread the cost of services, new equipment, salaries and day-to-day operations.